Home economics: Do you cash out?

When their son was born six years ago, Dan and Geri Burke moved to East Hampton, N.Y., to be near her family. But the couple found they were seeing less of each other because of Dan's long commute and work-related travel. Their solution?

The Burkes discovered that the ticket to the life they wanted was not only within reach, but that they were living in it. The home they had built for $400,000 is currently valued at approximately $1.5 million. So, after talking to a financial planner, they've decided to sell their home in New York.

"The proceeds will allow us to pay off our mortgage, save for retirement and our son's college tuition, and buy a new home in Florida," says Ms. Burke, who is now house-hunting in Tampa. "Let's face it, chances are housing prices will go up more there [East Hampton] than here [Tampa], but the whole decision to do this is quality of life for my family."

It's a question that homeowners are asking with increasing interest as housing values rise, especially in the West and Northeast. With the chance to make a handsome profit on your home, does it make sense to cash out and move somewhere cheaper? The answer depends on more factors than money, financial planners say, including how you're going to use the proceeds.

"I generally see people in their 50s to early 60s. They start thinking about their retirement," says Nan Sabel, the certified financial planner in Bedford, Mass., who advised the Burkes. "It's another piece. They have Social Security, maybe a pension, but by downsizing they just added another big chunk to their retirement security."

Downsizing isn't the only option, according to Ms. Sabel, who says that some people are able to maximize their housing potential by moving to a place where housing prices are lower. But if the decision involves moving to another part of the country, you have to look at not just the cost of living, but wage potential if employment is part of your future. "It only makes sense if you are going to be able to put a big chunk away for your retirement," says Sabel.

For Alice Micklewright, a San Francisco real estate agent, the decision did come down to money. The $160,000 home that she bought 20 years ago, a single family with a small rental unit, is now worth between $1.4 million to $1.5 million. She and her husband recently purchased a smaller home in Sonoma, Calif., 35 miles away. They plan to rent the Sonoma property out temporarily, then move into it after selling their current home. With the proceeds, she says, they will be able to pay off both properties and have enough money left over for retirement.

"Our attachment to the house is a big consideration," Ms. Micklewright says. "Our son lives in the city. If we could work out retirement in a different way, we would like to stay."

Liquidating is a good decision "if you can detach yourself emotionally," says Kevin Daum of Stratford Financial Services in nearby Alameda, Calif. "In California, we see people every few years taking the money." Houses in the Bay Area have been appreciating as much as 20 percent a year, he points out.

On a regional level, resale prices in the fourth quarter of 2004 increased 14.1 percent in the West from a year earlier, according to research conducted by the National Association of Realtors. In the Northeast, prices rose 13.5 percent during the same period. In the South, values rose 8.0 percent and in the Midwest, 6.9 percent.

Timing matters greatly.

When Barbara Mank, a writer working on her first novel, sold her home in Wellesley Hills, Mass., 13 years ago, it changed her life. The house had seen her through a marriage and divorce and the raising of her two children.

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